Enghouse Systems Limited
TSX : ENGH

Enghouse Systems Limited

June 08, 2017 17:00 ET

Enghouse Releases Second Quarter Results

MARKHAM, ONTARIO--(Marketwired - June 8, 2017) - Enghouse Systems Limited (TSX:ENGH) today announced its second quarter (unaudited) financial results for the period ended April 30, 2017.

Second quarter revenue was $79.5 million, an increase of 1.3% over revenue of $78.5 million in the second quarter last year. On a year to date basis, revenue was $158.4 million compared to $152.9 million last year, an increase of 3.6%. The revenue increase primarily reflects incremental revenue contributions from acquisitions but is mitigated by the unfavorable impact of foreign exchange compared to last year which negatively impacted revenue by an estimated $3.3 million in the quarter and $8.0 million year to date. Hosted and maintenance services revenue was $39.9 million in the quarter, an increase of 4.2% over the same period last year and includes the estimated negative impact of foreign exchange of $1.65 million.

Adjusted EBITDA for the quarter was $20.5 million ($0.75 per diluted share) compared to $19.3 million ($0.71 per diluted share) in last year's second quarter and includes the net negative impact of $2.1 million related to foreign exchange losses compared to last year. Adjusted EBITDA for the year to date was $43.6 million ($1.60 per diluted share) compared to $38.4 million ($1.41 per diluted share) last year, an increase of 13.6%. This includes the net negative impact of $4.4 million related to foreign exchange losses on a year to date basis compared to last year, which would have resulted in a 26.7% increase compared to the prior year excluding foreign exchange losses.

Net income for the quarter was $9.0 million ($0.33 per diluted share) compared to the prior year's second quarter net income of $8.5 million ($0.31 per diluted share). Results from operating activities for the quarter were $19.5 million compared to $18.1 million in the prior year's second quarter, an increase of 7.5% over the prior year.

Operating expenses before special charges related to restructuring of acquired operations were $35.0 million compared to $35.2 million in the prior year's second quarter and include incremental operating costs related to acquired operations, net of the favourable impact of foreign exchange. Non-cash amortization charges in the quarter were $7.5 million compared to $7.0 million in the prior year's second quarter and include amortization charges for acquired software and customer relationships from acquired operations. On a year to date basis operating expenses before special charges were $65.9 million compared to $67.6 million and include incremental operating costs related to acquired operations, net of the favourable impact of foreign exchange compared to last year.

Enghouse generated cash flows from operations of $18.4 million in the quarter and closed the quarter with $87.6 million in cash, cash equivalents and short-term investments, compared to $85.9 million at October 31, 2016. The cash balance was achieved after year-to-date payments comprised of $16.2 million (net of cash acquired and holdbacks) for Tollgrade Communications Inc. (acquired April 12, 2017), $1.7 million to partially settle loans inherited from the Presence Technology, S.L. acquisition (completed October 28, 2016), $0.4 million for prior period acquisitions, and $7.5 million in dividends paid.

The Board of Directors has approved an eligible quarterly dividend of $0.16 per common share, payable on August 31, 2017 to shareholders of record at the close of business on August 17, 2017.

Enghouse remains committed to its acquisition strategy and continues to seek accretive acquisitions.

A conference call to discuss the results will be held on Friday June 9, 2017 at 8:45 a.m. EST. To participate, please call +1-416-640-5946 or North American Toll-Free +1-866-233-4606. No PIN is required.

About Enghouse

Enghouse Systems Limited is a leading global provider of enterprise software solutions serving a variety of distinct vertical markets. Its strategy is to build a diverse software company through strategic acquisitions targeting the Contact Center, Networks (OSS/BSS) and Transportation/Public Safety sectors. Enghouse shares are listed on the Toronto Stock Exchange under the symbol "ENGH". Further information about Enghouse may be obtained from the Company's website at www.enghouse.com.

Non-GAAP Measures

The Company uses non-GAAP measures to assess its operating performance. Securities regulations require that companies caution readers that earnings and other measures adjusted to a basis other than GAAP do not have standardized meanings and are unlikely to be comparable to similar measures used by other companies. Accordingly, they should not be considered in isolation. The Company uses Adjusted EBITDA as a measure of operating performance. Therefore, Adjusted EBITDA may not be comparable to similar measures presented by other issuers. Adjusted EBITDA is calculated as results from operating activities adjusted for depreciation of property, plant and equipment, and special charges for acquisition related restructuring costs. Management uses Adjusted EBITDA to evaluate operating performance as it excludes amortization of software and intangibles (which is an accounting allocation of the cost of software and intangible assets arising on acquisition), any impact of finance and tax related activities, asset depreciation, other income and restructuring costs primarily related to acquisitions.

Adjusted EBITDA:

The table below reconciles Adjusted EBITDA to the most directly comparable IFRS measure, Results from operating activities:

Three Months ended Six Months ended
April 30,
2017
April 30,
2016
April 30,
2017
April 30,
2016
Total Revenue $ 79,543 $ 78,537 $ 158,383 $ 152,907
Results from operating activities 19,483 18,116 41,931 35,959
Depreciation of property, plant and equipment 595 791 1,209 1,617
Special charges 383 412 481 819
Adjusted EBITDA $ 20,461 $ 19,319 $ 43,621 $ 38,395
Adjusted EBITDA margin 25.7% 24.6% 27.5% 25.1%
Adjusted EBITDA per diluted share $ 0.75 $ 0.71 $ 1.60 $ 1.41
Enghouse Systems Limited
Condensed Consolidated Interim Statements of Financial Position
(in thousands of Canadian dollars)
(Unaudited)
April 30
2017
October 31
2016
Assets
Current assets:
Cash and cash equivalents $ 80,904 $ 78,436
Short-term investments 6,667 7,423
Accounts receivable, net 90,989 73,588
Prepaid expenses and other assets 10,485 9,720
189,045 169,167
Non-current assets:
Long-term deposits and accounts receivable, net 1,131 1,357
Property, plant and equipment 5,710 5,696
Intangible assets 92,058 86,632
Goodwill 156,265 144,578
Deferred income tax assets 9,881 11,765
Total assets $ 454,090 $ 419,195
Liabilities
Current liabilities:
Accounts payable and accrued liabilities $ 59,350 $ 55,440
Income taxes payable 1,920 5,139
Dividends payable 4,312 3,767
Provisions 856 2,111
Deferred revenue 63,936 54,300
Current portion of long-term loans 395 -
130,769 120,757
Non-current liabilities:
Deferred income tax liabilities 24,252 21,053
Deferred revenue 6,245 4,788
Net employee defined benefit obligation 2,357 -
Long-term loans 2,272 4,049
Total liabilities 165,895 150,647
Shareholders' Equity
Share capital 70,271 69,555
Contributed surplus 4,272 3,875
Retained earnings 200,326 187,649
Accumulated other comprehensive income 13,326 7,469
Total shareholders' equity 288,195 268,548
Total liabilities and shareholders' equity $ 454,090 $ 419,195
Enghouse Systems Limited
Condensed Consolidated Interim Statements of Operations and Comprehensive Income
(in thousands of Canadian dollars, except per share amounts)
(Unaudited)
Three months ended April 30 Six months ended April 30
2017 2016 2017 2016
Revenue
Software licenses $ 23,781 $ 24,444 $ 47,989 $ 45,214
Hosted and maintenance services 39,910 38,300 79,076 76,106
Professional services 14,852 14,482 28,820 28,917
Hardware 1,000 1,311 2,498 2,670
79,543 78,537 158,383 152,907
Direct costs
Software licenses 1,453 1,203 3,562 2,360
Services 22,606 22,698 44,849 44,488
Hardware 625 925 1,626 1,730
24,684 24,826 50,037 48,578
Revenue, net of direct costs 54,859 53,711 108,346 104,329
Operating expenses
Selling, general and administrative 23,327 22,915 42,818 43,056
Research and development 11,071 11,477 21,907 22,878
Depreciation of property, plant and equipment 595 791 1,209 1,617
Special charges 383 412 481 819
35,376 35,595 66,415 68,370
Results from operating activities 19,483 18,116 41,931 35,959
Amortization of acquired software and customer relationships (7,511 ) (7,008 ) (14,968 ) (13,848 )
Finance income 60 21 99 54
Finance expenses (142 ) (87 ) (249 ) (168 )
Other (expense) income (19 ) 22 151 55
Income before income taxes 11,871 11,064 26,964 22,052
Provision for income taxes 2,844 2,544 6,204 5,071
Net income for the period $ 9,027 $ 8,520 $ 20,760 $ 16,981
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation differences from foreign operations 14,667 (18,240 ) 7,978 (9,457 )
Transfer to net income of realized gains on available for sale investments - - - (14 )
Unrealized loss on available for sale investments (2,352 ) (60 ) (2,445 ) (199 )
Deferred income tax recovery 312 8 324 28
Other comprehensive income (loss) 12,627 (18,292 ) 5,857 (9,642 )
Comprehensive income (loss) $ 21,654 $ (9,772 ) $ 26,617 $ 7,339
Earnings per share
Basic $ 0.34 $ 0.32 $ 0.77 $ 0.63
Diluted $ 0.33 $ 0.31 $ 0.76 $ 0.62
Enghouse Systems Limited
Consolidated Statements of Changes in Equity
(in thousands of Canadian dollars)
(Unaudited)



Share
Capital
-number



Share
capital
$



Contributed
surplus
$

Accumulated
other
comprehensive
income (loss)
$



Retained
earnings
$




Total
$
Balance - November 1, 2016 26,906,962 69,555 3,875 7,469 187,649 268,548
Net income - - - - 20,760 20,760
Other Comprehensive Income:
Cumulative Translation Adjustment - - - 7,978 - 7,978
Transfer to net income of realized gains on available for-sale investments
-

-

-
- - -
Unrealized loss on available-for-sale investments - - - (2,445 ) - (2,445 )
Deferred income tax recovery - - - 324 - 324
Comprehensive income for the period - - - 5,857 20,760 26,617
Employee share options:
Value of services recognized - - 544 - - 544
Proceeds on issuing shares 45,500 716 (147 ) - - 569
Dividends - - - - (8,083 ) (8,083 )
Balance - April 30, 2017 26,952,462 70,271 4,272 13,326 200,326 288,195
Balance - November 1, 2015 26,587,262 64,203 4,029 20,254 154,866 243,352
Net income - - - - 16,981 16,981
Other Comprehensive Income:
Cumulative Translation Adjustment - - - (9,457 ) - (9,457 )
Transfer to net income of realized gains on available- for-sale investments
-

-

-

(14
)
-

(14
)
Unrealized loss on available-for-sale investments - - - (199 ) - (199 )
Deferred income tax recovery - - - 28 - 28
Comprehensive income for the period - - - (9,642 ) 16,981 7,339
Employee share options:
Value of services recognized - - 576 - - 576
Proceeds on issuing shares 225,700 3,098 (590 ) - - 2,508
Dividends - - - - (6,971 ) (6,971 )
Balance - April 30, 2016 26,812,962 67,301 4,015 10,612 164,876 246,804
Enghouse Systems Limited
Condensed Consolidated Interim Statements of Cash Flows
(in thousands of Canadian dollars)
(Unaudited)

Three months ended April 30

Six months ended April 30
2017 2016 2017 2016
Cash flows from operating activities
Net income $ 9,027 $ 8,520 $ 20,760 $ 16,981
Adjustments for:
Depreciation of property, plant and equipment 595 791 1,209 1,617
Amortization of acquired software and customer relationships 7,511 7,008 14,968 13,848
Stock-based compensation expense 356 251 544 576
Provision for income taxes 2,844 2,544 6,204 5,071
Finance expenses and other expense/income 161 65 98 113
20,494 19,179 43,783 38,206
Changes in non-cash operating working capital 956 4,122 (7,062 ) (6,502 )
Income taxes paid (3,090 ) (2,608 ) (7,686 ) (4,105 )
Net cash flows from operating activities 18,360 20,693 29,035 27,599
Cash flows from investing activities
Purchase of property, plant and equipment, net (354 ) (1,001 ) (919 ) (2,319 )
Purchase of other software (731 ) (485 ) (1,220 ) (619 )
Acquisitions, net of cash acquired of $3,637 (2016 - $2,202) (16,170 ) (3,334 ) (16,170 ) (29,353 )
Purchase consideration for prior period acquisitions (51 ) (2,753 ) (444 ) (3,443 )
Net (purchase) sale of short-term investments (722 ) 350 (1,330 ) (695 )
Net cash flows used in investing activities (18,028 ) (7,223 ) (20,083 ) (36,429 )
Cash flows from financing activities
Issuance of share capital 205 11 569 2,508
Repayment of loans - - (1,667 ) -
Payment of cash dividend (3,771 ) (3,218 ) (7,538 ) (6,408 )
Net cash flows used in financing activities (3,566 ) (3,207 ) (8,636 ) (3,900 )
Effect of currency translation adjustments on cash and cash equivalents 3,494 (4,449 ) 2,152 (1,273 )
Net increase (decrease) in cash and cash equivalents during the period 260 5,814 2,468 (14,003 )
Cash and cash equivalents - beginning of period 80,644 74,314 78,436 94,131
Cash and cash equivalents - end of period $ 80,904 $ 80,128 $ 80,904 $ 80,128
Enghouse Systems Limited
Selected Segment Reporting Information
(In thousands of Canadian dollars)
(Unaudited)
For the three months ended April 30 For the six months ended April 30

2017

2016

2017

2016
Revenue:
Asset Management Group $ 32,466 $ 29,849 $ 63,752 $ 55,607
Interactive Management Group 47,077 48,688 94,631 97,300
Total $ 79,543 $ 78,537 $ 158,383 $ 152,907
Asset Management Group:
- Segment profit before special charges $ 8,760 $ 7,321 $ 17,285 $ 13,228
- Special charges (440 ) (288 ) (344 ) (513 )
Asset Management Group profit $ 8,320 $ 7,033 $ 16,941 $ 12,715
Interactive Management Group:
- Segment profit before special charges $ 12,760 $ 12,906 $ 28,528 $ 27,629
- Special charges 57 (124 ) (137 ) (306 )
Interactive Management Group profit $ 12,817 $ 12,782 $ 28,391 $ 27,323
Corporate expenses (1,654 ) (1,699 ) (3,401 ) (4,079 )
Results from operating activities $ 19,483 $ 18,116 $ 41,931 $ 35,959
Amortization of acquired software and customer relationships (7,511 ) (7,008 ) (14,968 ) (13,848 )
Finance income 60 21 99 54
Finance expenses (142 ) (87 ) (249 ) (168 )
Other (expense) income (19 ) 22 151 55
Income before income taxes $ 11,871 $ 11,064 $ 26,964 $ 22,052

Contact Information

  • Sam Anidjar
    Vice President, Corporate Development
    Enghouse Systems Limited
    (905) 946-3200
    investor@enghouse.com